Stock option expensing

Okay, imagine you have a lemonade stand and you want to give your best friend, Timmy, a special privilege to buy your lemons for cheaper than anyone else. However, you still want to know how much money you're making from your lemonade stand at the end of the day. So, you decide to start counting how much your lemons cost you, including the discount you gave Timmy. This helps you keep track of how much money you're really making even though you gave Timmy a deal.

Now, let's imagine a big company like Apple. They have employees who work hard and make the company a lot of money. To encourage these employees to keep performing well, Apple might give them a special perk, like the option to buy Apple stock at a lower price than other people can. This is kind of like giving Timmy a special price on your lemons.

But, just like with your lemonade stand, Apple still needs to know how much money they're really making. So, they need to include the cost of giving employees the stock option in their financial statements. This way, investors and other people who are interested in Apple can see a more accurate picture of how well the company is really doing. That's called "expensing" the stock option.

So, in short: when a company gives their employees the option to buy stock at a lower price, they have to include that cost in their financial reports so everyone knows how much the company is really making.